Jeff and Annie Strain Sue NetEase for $900 Million, Alleging It Erroneously Told Investors They Committed Fraud

Jeff Strain and Annie Strain, co-founders of ArenaNet and co-creator of State of Decay, are suing NetEase, the creator of Marvel Rivals, for $900 million. Their lawsuit alleges NetEase deliberately devalued and ultimately caused the closure of their studio, Prytania Media Group, by spreading false rumors of fraud to investors.

Filed initially in Louisiana state court and subsequently moved to federal court, the amended complaint accuses NetEase, a Chinese entity, of intentionally destroying the Strains' careers to avoid U.S. legal compliance. The complaint details a complex narrative surrounding Prytania Media's unexpected subsidiary shutdowns. NetEase held a 25% stake in Crop Circle Games, one of Prytania's subsidiaries, with a representative on the board.

Initially, the relationship appeared positive. However, the Strains allege NetEase expressed concerns about U.S. foreign investment laws, requesting a “low profile” investment to circumvent CFIUS regulations and suggesting the opening of branches in Canada or Ireland to facilitate investment. The complaint highlights NetEase's alleged ties to the Chinese Communist Party, suggesting a desire to keep these connections confidential from the U.S. government. This is supported by referencing the U.S. government's designation of Tencent as a "Chinese military company" and reports of NetEase CEO Ding Lei allegedly using the threat of CCP retaliation against Activision Blizzard in 2023.

The Strains also claim Lei, who allegedly purchased a $29 million Bel-Air mansion from Elon Musk in 2020, expressed concerns about his U.S. immigration status being jeopardized by publicized NetEase investments. As the Strains continued to press for regulatory compliance, their relationship with NetEase deteriorated. Crop Circle Games experienced financial difficulties, leading to layoffs and furloughs in early February 2024.

On February 22nd, Jeff Strain received a text message from a venture firm managing director alleging Crop Circle Games was accused of fraud. The Strains traced the rumor to NetEase, with Han Chenglin, NetEase's board representative, admitting to making a comment about the company's rapid depletion of funds. This allegedly triggered investor withdrawals, leaving Prytania unable to secure further funding. The company, once valued at $344 million, became virtually worthless. Crop Circle Games closed in March 2024.

In April 2024, Annie Strain published a letter on the company website attributing the company's struggles to economic downturn and funding difficulties, also mentioning an alleged, unpublished Kotaku article. This letter was later removed. Possibility Space, another Prytania subsidiary, subsequently closed, with Jeff Strain blaming employee leaks to the press. NetEase and fraud allegations were not mentioned in this statement.

Jeff and Annie Strain and Prytania Media are suing NetEase for defamation, unfair trade practices, tortious interference, and negligence, seeking damages exceeding $900 million—triple their company's previous valuation. NetEase denies the allegations, asserting their commitment to business integrity and confidence in a favorable legal outcome.